Funds that Focus on Buybacks

Brendan Conway explains the pros and cons of two ETFs that own companies that are reducing their share count, and therefore increasing earnings per share.

This transcript has been automatically generated and may not be 100% accurate.

I ... the ... stock investors love share buybacks but they're not always what they're cracked up to be I'm Jack Otter Editor Barron's dot com ... under for an income when was our focus on funds bought ... seven and we all get excited when we hear that the companies are buying back shares especially in a slow growth market because you think while more earnings per share my stock certain go up but as you explain in your your plot posts ... it's not always exactly that simple ... yet you know J is the DVT I think it's a look at it from the supply and demand perspective ... and also look at how the buyback ... is fine it's because in theory ... take some shares out of the market and all else being equal the price of that share should writes because it's still the same underlying ... business ... but ... don't be Holdings P five hundred companies they're often not ... buying back their stock at the ideal time ... to drop and doing it for reasons other than whether it's a good idea to do that sometimes are just picking up the slack from ... new share issuance ... or from employee stock options of getting exercise goes there often pushing ... new stock owning the market at the same time that they now SOEs than that nothing beats and that nothing in some cases in ... those actions by the way are not getting press releases in fanfare ... but of course ... I stocks are IBM Companies are always tempted to buy the stock at the high price when in fact when times are tough in the stock is love that's when they should be fun ... that's right yet there there's a study last year that showed that some ... of for for about six or seven years ... during the last decade ... of one-third of all its pieces of the five hundred buybacks ... painted it as is the loss making transaction ... that tells you are right there ... no on this phenomenon does not come un noticed and there are some TT apps ... recognizing this problem are using active management to try to only buy the good buybacks ... yes and check the level of the key principles here is to look for ... net by taxi looking for companies that are systematically shrinking ... the number of shares outstanding their ... pick of ... the fund that focuses just on that ... that that that was of the TrimTabs float shrink ETF ... and that was up by let's check in the high twenties something percentage points this year sitting very well ... another one is the Cambria Shareholder Yield ETF ... this one takes more of a broader approach ... the net buyback ideas just part of what they see it and that was also nice is here that that was new and that was up by couple percentage points still being a sleepy ... very short lifetime ... ok so Ron and me having to do the research I can By Laurie ZTS get my diversification what's not to love ... the thing that's and that's a lovely thing to remember is that these are still kind of race lovers funds ... are a lot of small cap stocks in their three midcap stocks ... on the these are also new funds so they haven't really been tested with a ... sharp selloff ... my guess is that because of those smaller companies ... I think they would fall harder and faster than its peers selloff said he then went to the top performers I guess could just be the effect of the Russell two founders up a lot this year it may be ... thank so much attention ...